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Up or down, there’s just no winning for petrol dealers

 | August 30, 2017

Petrol Dealers Association Malaysia says a daily free float system may be the best way to resolve the woes of dealers, but warns smaller players may suffer.

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PETALING JAYA: Although petrol dealers hardly get any sympathy on social media when they complain about their losses, they are very much in a losing situation.

Speaking to FMT, Petrol Dealers Association of Malaysia (PDAM) president Khairul Annuar Abdul Aziz said this was because the profit margin for dealers set by the government through the automatic pricing mechanism hasn’t been reviewed since 2008.

Presently, the profit margin is set at 12.19 sen per litre for petrol and 7 sen per litre for diesel, but operating costs have doubled since then due to the implementation of minimum wages and increases in electricity tariffs.

Additionally, Khairul said petrol dealers absorb a 1% service charge imposed on customers who pay using credit or debit cards.

“So when fuel prices increase, our operating expenses decrease because we are buying the petrol low and selling high, but we are forking out more for the service charge on card payments because the value of that 1% increases.

“On the other hand, when prices drop, we obviously lose because we’re buying the petrol at a high price and selling at a low price.”

So, he said, whether prices go up or down, the profit margins of petrol dealers are shrinking while costs have been rising.

Khairul said one way the government could help petrol dealers was by reviewing the profit margin.

“The profit margin is based on an absolute figure set nine years ago, so I think a review is timely.

“Alternatively, the profit margin can be based on a percentage. However, if prices were to drop drastically, then that would be bad for us.”

On the proposal by some for Malaysia to shift towards a daily free float system, Khairul said this was one way to go due to the perceived benefits over the current weekly float system.

Last November, economist Firdaos Rosli from the Institute of Strategic and International Studies Malaysia said it was inevitable that Putrajaya would eventually shift to pricing fuel according to the daily price of crude oil.

Under a free float system, petrol and diesel is sold at a certain price to dealers, according to global crude oil prices.

The dealers are then free to set their own profit margin to attract customers.

“The issue with this system is that smaller dealers, especially those in rural areas and high-competition areas, won’t be able to compete with the big-volume dealers.

“Once the smaller dealers are gone, the competition will only be between a small group of big players, which can result in higher prices than before the free float.”

He said another option was for the government to follow the system in the Philippines or South Africa where oil companies, not the government, set the prices on a weekly or monthly basis respectively, creating healthy competition between the oil companies.

“Putrajaya has told us that they want to reduce our exposure to the prices going down.

“We have suggested ways so that we don’t make too much when prices go up and don’t lose too much when they go down.”

But Khairul said they were still waiting for the government’s approval of┬áthe suggestions.

“In the meantime, PDAM has already started talking to oil companies on how we can mitigate our losses when the price goes down.”

He said for petrol dealers, a monthly rather than weekly pricing mechanism allowed more time for them to adjust, but the key issue was giving petrol dealers more time to reduce the impact of lower petrol prices.

“We don’t want excessive profits or excessive losses.”

Think tank tells Putrajaya to come clean on fuel price formula


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